Natural gas production declines and hits lowest level in 20 years

FARMINGTON — Natural gas production in northwest New Mexico dropped 4.2 percent in 2012 to its lowest level in 20 years.

It was the sixth consecutive year of declining production in the region, according to state Oil Conservation Division data.

Drillers in the San Juan Basin have reacted by moving some operations to other states, leaving positions vacant and retooling their drilling program to focus on oil, a more valuable commodity.

To a significant extent, the drop in drilling is a result of low prices. Natural gas was trading at $3.63 per million British thermal units, or MMBtu, on the New York Mercantile Exchange on Friday, a rebound from a year ago when gas was trading near $2, but still below the boom in 2005-06, when natural gas was at times worth around $7.

Production is unlikely to recover before prices do, said Tom Dugan, president of Dugan Production in Farmington.

"With the price of gas being like it is, it's hard to drill a well and make a profit," he said.

The U.S. Energy Information Administration forecasts gradual improvement in natural gas prices over the next year.

Northwest New Mexico produced 780 billion cubic feet of natural gas in 2012, down from about 815 billion a year earlier. It was the lowest since 1992, when the region produced 733 billion cubic feet of natural gas.

That has had wide effects in the basin, where natural gas production still dominates despite increasing interest in oil.

"We're not looking at good times here in the San Juan Basin because we are principally gas," Dugan said.

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Oil exploration is on the uptick, led by Encana Corp.

The Canadian company drilled nine horizontal wells searching for San Juan Basin oil in 2012, and has continued its drilling program this year.

"Hopefully these horizontal wells will kind of make up for the slack," said Dugan, who has partnered with the company on some of its local leases.

A conference to discuss the possible San Juan Basin oil play will be held March 18-19 at San Juan College. The conference is already sold out.

Oil has remained valuable, trading at $91.95 per barrel on Friday.

Still, some warn not to count out natural gas. Utilities have moved toward natural gas power plants as a cheaper and cleaner-burning alternative to coal.

There are also efforts under way to convert vehicle fleets to natural gas — City Councilor Jason Sandel, whose Aztec Well Servicing is a major service provider in the basin, has pushed for converting local vehicle fleets.

And last week Warren Buffett's Berkshire Hathaway announced that Burlington Northern Santa Fe Railway would experiment with converting diesel locomotives to natural gas.

John Bemis, New Mexico secretary of Energy, Minerals and Natural Resources, said the state is working to boost demand for natural gas.

"While it is true that natural gas production is down in the San Juan Basin because of another warm winter leading to depressed prices, there is little doubt that natural gas will be one of the leading energy sources in the future," he said Friday in a prepared statement. "New Mexico is committed to doing everything possible to further the consumption of this resource that is abundantly available in the state."

Bemis added, "Ongoing efforts by the (New Mexico Gov. Susana) Martinez administration include joining the consortium of states to bring more natural gas powered vehicles into the state automobile fleet and the recently agreed upon regional haze settlement with (the U.S. Environmental Protection Agency) and (Public Service Company of New Mexico) that will lead to the construction of a natural gas power plant. These are the kinds of efforts that will boost demand for natural gas in the future."

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